Okay, I obviously need more coffee this morning. Senario two would come out to more like $5200 which would include monthly payments and closing costs. About half of senario one.

I just spoke (briefly) to someone at our farm credit who said that the interest rate would be 5.25 % of the loan. So we would pay interest only on that amount of $552.00 per month which is about $2.00 a month-is that really correct or did I miss something. She said that we would also pay 2% of the total loan for ($2,000) for closing and then $1,000 for another fee that we get back when we have completed all the construction.

Other than these loans being more difficult to get, is there another reason we wouldn't go with this option. It appears that we would only pay a little over $2,000 to have this loan in the end-correct?

I'm a big fan of paying cash for a home if at all possible. Unless you are in a hurry, I would sell your home and then pay cash for your new one. It blew my mind how much interest was paid out over 15 years on a low interest mortgage.

My husband and I sold our house, we paid cash for the land we wanted, and are in the process of doing our blueprints for our next (forever) home....a log cabin I've always dreamed of with a full wrap around porch. I also do not want a large home to take care of any more. Like you, we have considerable building experience and are going to be the contractor for this home.

We decided that we would buy an inexpensive new single wide mobile home so that we could actually live on our land while building our house. We built a barn and have a climate controlled area for our household belongings (couldn't squeeze much in here). The European air conditioner/heaters work excellent and are economical to run.

When we are done building our home we will sell the single wide and whoever purchases it can have it moved. In the meantime, we have not wasted our money on rent, paying a greedy bank ridiculous interest costs, and we are right where we want to be...on our land.

Sandy

Well, in most construction loans they give you the money in draws rather than the entire $100K at one time. You will NOT know how much you will pay in interest until you are finished, but you should easily be able to set up excel spreadsheets to run different scenarios based upon your realistic expectations for timing, progress, etc. Say for example that your first draw is for $25K, and that is it for 3 months...for those 3 months you are only paying interest on the $25K which has been advanced, and so on.

With as much cash as you have on hand, unless your real estate market is complete cr*p (meaning that it could take months and months and months to move), I would not choose scenario #1. 2 and 3 are about the same, you just have to run the numbers and interest rates to see where you would pay the least amount in interest and (and even more importantly) junk fees. Either way, you are at least gaining the benefit of having a tax deduction vs. renting.

good luck.

senator-
We have a few things in common:
Paid off existing home.
Paid off lot.
$ in the bank.
We have enough in the bank to build the home, so we elected to live in our existing home, and not list it for sale, until the new home was ready. The convenience of not having to move twice, not having the stress of making our existing home "show ready" while living in it, finding a rental that would take us and our pets, and having to deal with potential hassles about extending a rental term if the construction took longer than anticipated were the critical factors.

I did look into a little construction loan just in case we decided to tie up some of our capital in something else during construction. My take away was it would behoove us to take a little mortgage (or credit line) on our existing home, if necessary, and deal with our construction without the bank's interference. Consider the flexibility of not having to go to the bank for a draw.

My 2 cents!

Thanks everyone. Part of the trick here is that we are on a timeline of about 1 year. We need to move by August 2011 because we want our daughter to start school in that school system (different county than where we currently are). I would rather not move twice with our two small kids, but I understand how that would provide us a good amount of cash on hand. I don't think it is likely we will do a construction loan, but I wanted to get more information about it. I think the most likely senario is that we would borrow against our current home when we need to towards the end of the project. The advantages, like you said, is not needing to worry about the bank and the draws.

senator,

How confident you are about the selling of your current home? If you are confident that your current house will be sold...(If you do not know how easy it will be, ask someone knowledgeable).

I suggest:
-Get pre-approved for a construction loan and also for an equity loan. Do not "close" on either one, yet; construction loans have an specified time frame and there is no need to start paying for an equity loan if you do not need the money upfront.
-You have about 67% to start construction. That will take you a long way so go ahead and start construction.
-Stay at your current home while you build.
-Put the home in the market next spring, not before. You might get lucky and find a buyer that can wait until you finish your build. If not, do not panic, God will provide.

-When you have used most of your money, get the construction loan. Many subcontractors are OK with receiving payment a few days after they are done so most likely you will pay construction loan interest for only a couple of months.
-Chances are that by now, your current home is sold.
-Move and enjoy your new home.

-worst case scenario? The old house is not sold. You can convert your construction loan to a permanent loan. I can assure you that you will pay a lot less for this than for renting a house without the hassle of moving twice (I have done that).

Only you can decide what the right scenario is. Your gut will usually steer you in the proper direction.

I can only tell you how free my husband and I feel right now without any loans on our property. No one can take it away from us if times get really sour. Naturally, you still have taxes, insurance, and upkeep, but building a reasonable home takes the pressure off of that. We look at our land and feel thrilled that it is truly ours. As long as someone has a loan on their home or land, they do not own it, the bank does. Try missing a payment or two if disaster strikes and see what happens. Disaster can be a major unexpected illness or accident, natural disaster in an area, or economy based.

Was it a hassle to sell a house while living in it? For sure! I hated that process. (Fortunately, we sold in under a year). We decided the short term nuisance of selling while in the house was still better than owing a bank for more money. The interim of not being in my new home yet is difficult at times. I'm in a small place in the meantime. I'll admit, I'm spoiled and want it now. However, in the home scheme of things, it's only a short term inconvenience, and then I'll be through with construction and in my home. And I do have a decent roof over my head in the meantime. Also totally ours.

As far as construction loans go, yes, they are given out in draws, but we had been locked into an interest rate that was good for the life of the construction loan, and grandfathered into the mortgage itself. However, the way the banks are now, that may no longer be the case. Keep in mind that a lot of banks will not let you be the owner/contractor, but it doesn't sound like that is the way you want to go anyway.

Now the issue about equity loans. They are hard to come by these days, even with a perfect credit score. I have a friend who is vice president of a bank. She said that they have had many people borrow against a home they are currently in, and no longer wanted. Of coarse, they never tell the bank they no longer want the home. They say they want to make improvements, or whatever. With the real estate market what it is, it can take time to sell. So, they are buying another home with the equity money and letting the bank foreclose on the one that was no longer wanted. This has made getting home equity loans harder to get than hens teeth, and hurts the honest people.

You may also find it very difficult to get the equity loan processed, funds dispersed, and a new home totally constructed ready to move in, within a year. Even with a reputable builder, homes are seldom done in the exact time frame we want. The banks are approving loans, setting closing dates, and then either pulling the plug for some lame excuse three days before closing, or re-setting closing dates over and over, due to "needing more papers filed" that come out of nowhere.

Good luck in whatever decision you make. It's never an easy one, and I wish you the best.